Jodhpur Vidyut Vitran Nigam LTD. vs. Union Of INDIA

Held

The Court held that the entire package of services, namely transmission or distribution of electricity by an electricity transmission or distribution utility, has been exempted by Notification No. 12/2017. The impugned circular, particularly Clause 4(1), attempts to bring five specific services provided by DISCOMs into the tax net, despite these services being part of the exempted bundle. The Court found this attempt to carve out specific services from the exempted package to be arbitrary, unreasonable, and violative of Section 8 of the CGST Act. A circular cannot clarify or modify a statutory notification that is already unequivocal. The Court agreed with the Gujarat High Court's reasoning in Torrent Power Ltd. Vs. Union of India, which held that services naturally bundled in the ordinary course of business with the principal exempt supply should be treated as part of that exempt supply. Therefore, the Court quashed Clause 4(1) of the impugned circular dated March 1, 2018, and restrained the respondents from raising any demand or taking coercive measures based on it. The Court also set aside a summons dated March 28, 2018, to the extent it called for documents related to the services listed in item 4(1) of the circular.

Facts

The petitioner, Jodhpur Vidyut Vitran Nigam Ltd., a public sector undertaking distributing electricity, challenged a circular dated March 1, 2018, issued by the Department of Revenue. This circular, based on GST Council recommendations, declared certain services provided by DISCOMs as taxable. These services included application fees for electricity connections, rental charges for metering equipment, testing fees for meters/transformers, labour charges for shifting meters or service lines, and charges for duplicate bills. The petitioner contended that these services are integral to the transmission and distribution of electricity, which is exempted under Notification No. 12/2017 dated June 28, 2017, issued under Section 11(1) of the CGST Act. The petitioner argued that the circular arbitrarily carved out exceptions to the exemption.

Key Issues

1. Whether Clause 4(1) of the Circular dated 01.03.2018, which declares certain services provided by DISCOMs as taxable, is arbitrary and ultra vires the exemption Notification No. 12/2017-CT (R) and Section 8 of the CGST Act, 2017? Petitioner's arguments: The petitioner argued that Notification No. 12/2017 exempts the entire service of transmission and distribution of electricity. The impugned circular, by carving out exceptions for services like application fees, meter rental, testing fees, labour charges for shifting, and duplicate bill charges, arbitrarily excludes services that are an essential and integral part of the main function of electricity supply and distribution. They contended that a circular cannot override or modify a statutory notification and that these enumerated services are part of a composite supply, the taxability of which should be determined by the principal supply, i.e., the exempted transmission and distribution of electricity. The petitioner relied on the Gujarat High Court's decision in Torrent Power Ltd. Vs. Union of India. Respondents' arguments: The respondents argued that the services mentioned in Clause 4(1) of the circular are not services relating to transmission or distribution of electricity and are therefore liable to tax. They also noted that a Special Leave Petition (SLP) had been filed against the Gujarat High Court's judgment, and leave had been granted by the Supreme Court.